Amid today’s economic challenges, consumers continue to rely heavily on credit for liquidity, as evidenced by growing household debt across all loan types. Since Q2 2022, for example, booked dollars of unsecured installment loans from $25,001 to $50,000 have risen by 17 points, from 23% to 40%. Clearly, banks have shifted to larger loan amounts to meet borrower expectations, which understandably has them questioning the risk.
Booked Installment Loan Dollars by Loan Size
But here’s what’s interesting: the shift has come with no increase to risk.
Despite the higher debt levels, credit scores have increased and debt-to-income ratios remain below 40% for higher dollar loans. This indicates that banks can drive profitable growth in unsecured lending by opening the buy box, thereby helping borrowers seeking alternatives to credit cards while at the same time ensuring that credit quality remains paramount. It appears to be an opportunity worth exploring rather than what initially may appear to be overreach.
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